In the summer of 2021, the Chinese government banned Bitcoin (BTC) mining, citing typical concerns about harmful effects on the environment and money laundering. Now, the Chinese government is working hard to create its own digital yuan currency. This raises the question of whether the original reasoning was merely a Trojan horse.
The ban could easily be a huge blow to Bitcoin’s momentum. After all, by the end of 2019, nearly 75% of all bitcoin mining was in China, according to Cambridge Alternative Finance Benchmarks. If the network teeters under the weight of a nationwide ban in China, other governments may have begun to think that Bitcoin could eventually be beaten.
China’s ban is a stress test for Bitcoin
For a short period of time, the ban worked as expected – by June 2021, the Bitcoin network’s hash rate had dropped several times to 57.47 exahashes per second (EH/s). However, by December 2021, the hash rate rebounded to 193.64 EH/s, and by February 2022, it reached an all-time high of 248.11 EH/s.
The whole test is one that Bitcoin passes with flying colors: Banning Bitcoin mining has proven to be as effective as the Prohibition era in killing America’s drinking culture.
An obvious explanation for the recovery in hashrate in early 2022 is that miners who set up shop in China simply fled to the Western Hemisphere. There is a lot of evidence that seems to support this hypothesis – mainly the US share of the global hash rate surging from 4.1% at the end of 2019 to 35.4% in August 2021.
The ban created a decentralized black market
However, the so-called “great migration” may not be the only unintended consequence of the Chinese ban. As of May 2022, Chinese miners account for 22% of the global hash rate — a number that is not as dominant as it used to be, but a significant share.
As the Cambridge Centre for Alternative Finance reports:
“It is likely that a significant number of Chinese miners adapted quickly to the new environment and continued to operate in secret, while using foreign proxy services to hide their tracks to divert attention and censorship.”
In fact, there is probably a huge black market for bitcoin mining in China right now.
One of the most authoritarian regimes on the planet cannot stop its citizens from mining Bitcoin, as best it can. From an economic standpoint, the potential benefits to Chinese miners outweigh the cost of being caught on the spot.
Despite the concerns and skepticism expressed by “experts” about Bitcoin, miners in China take the activity so seriously that they are willing to risk breaking the law to gain access to future global reserve assets.
International miner competition intensifies
Despite the explosion of the Chinese black market, there is no doubt that the U.S. economy has benefited from the Chinese ban. Outside Kearney, Nebraska, a company called Compute North operates one of the largest cryptocurrency mining data centers in the United States. Before and after the China ban, the company received numerous calls from operators trying to move their mining equipment from China to the United States.
Compute North welcomes its new partner with open arms. “We’ve doubled in size,” says their chief technician. “We’ve been busy all summer. […] And there has been an increasing demand. “
Other towns, like Rockdale, Texas, and Massena, New York, are also witnessing the growth of their cryptocurrency mining ecosystems.
All of this migration could lead to a vicious circle in China and a virtuous circle in the US, which means that various other bitcoin-related opportunities will also move from China to the US. Lamont Black, a professor of finance at DePaul University, believes that the recent influx of bitcoin mining into the U.S. could support the country’s broader blockchain economy.
The logic goes both ways – if bitcoin miners are leaving China, then ancillary bitcoin activity will follow.
While the fleeing miners considered countries other than the U.S., miners seem to prefer the U.S. because of its relatively strong respect for property rights.A miner immigrated from China said: “Maybe the government [of countries such as Russia or Kazakhstan] Not only did they shut down the operation, but they also took […] all your machines. You could lose everything, so America is a safe bet. ”
The harvest of governments around the world
This black market phenomenon should teach Western politicians a lesson: If the Chinese government can’t ban bitcoin mining, neither can you.
As the U.S. makes progress in studying the regulatory implications of the industry, traditional financial institutions are closely watching its movements. Retail and institutional investors are also keeping an eye on market volatility as they battle inflation at home. At this point, trying to put the toothpaste back in the tube is nothing but a waste of energy. Bitcoin mining is not going away.
America and other world leaders must learn from the mistakes of others so they don’t have to repeat them. China wastes its own efforts so that others don’t have to.
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William Szamosszegi is the CEO and founder of Sazmining, the world’s first clean energy bitcoin mining platform for retail customers. He is also the host of the Sazmining Podcast, and as a Bitcoin evangelist, Will works to improve humanity’s relationship with time, money, and energy. Will is a Bucknell Venture Fund recipient, a finalist at the SXSW Digital Entrepreneurship Championship, a Forbes Fellow, and a regular speaker at the Bitcoin Mining Conference.